FILED: NEW YORK COUNTY CLERK 09/08/ :19 PM INDEX NO /2016 NYSCEF DOC. NO. 25 RECEIVED NYSCEF: 09/08/2016

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1 FILED: NEW YORK COUNTY CLERK 09/08/ :19 PM INDEX NO /2016 NYSCEF DOC. NO. 25 RECEIVED NYSCEF: 09/08/2016 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK X Index No DANA STUTMAN, -against- Petitioner, ROBERT PRESTON, JUDITH ACKERMAN, and PRESTON ETTINGER S LEINER & ACKERMAN, : P.C., f/k/a/ PRESTON STUTMAN & PARTNERS, P.C.,: Respondents. MEMORANDUM OF LAW IN SUPPORT OF RESPONDENTS ROBERT PRESTON AND JUDITH ACKERMAN'S MOTION TO DISMISS PURSUANT TO N.Y. C.P.L.R. 3211(A)(7) Respondents Robert Preston and Judith Acket nan respectfully submit this Memorandum of Law in Support of their Motion to Dismiss the Verified Petition of Dana Stutman pursuant to N.Y. C.P.L.R. 3211(a)(7). PRELIMINARY STATEMENT AND SUMMARY OF ARGUMENT In this action, Petitioner seeks a judicial dissolution of respondent Preston Ettinger Steiner & Ackerman, P.C., f/k/a/ Preston Stutman & Partners, P.C. ("Preston Stutman" or "the firm"), pursuant to N.Y. B.C.L a, and an accounting of her ownership interest in Preston Stutman, a New York matrimonial law firm. Petitioner requests that Preston Stutman be dissolved because approximately three months after Petitioner notified Respondents that she was leaving the firm to join a competing firm and then unilaterally extended her departure date the firm ended her relationship, allegedly cut off her access to the Preston Stutman computer system, denied her access to the premises, and did not provide her with certain financial information upon demand. 1 1 of 8

2 In the Verified Petition, in addition to the dissolution, Petitioner requests a Judgment requiring that Preston Stutman and the other individual shareholders of Preston Stutman be liable to pay Petitioner her interest in Preston Stutman following an accounting. Petitioner's request for relief against the individual shareholders is legally unsustainable. The provisions of Business Corporation Law 1104-a establish a procedure whereby a shareholder can commence a special proceeding for dissolution of a corporation and obtain an accounting. However, the special relief afforded by N.Y. B.C.L a only provides for a determination of the shareholders' interest in the corporation itself and, potentially, a requirement that the corporation pay the shareholder what is due the statute does not provide for any relief whatsoever against fellow shareholders. Thus, the cases which have addressed this issue have determined that a petition for dissolution pursuant to N.Y. B.C.L a does not create: A private cause of action against fellow shareholders, or Personal liability for fellow shareholders. Accordingly, Petitioner's request that the individual shareholders be held personally liable to Petitioner is unsustainable. Therefore, the Petitioner must be dismissed in its entirely against respondents Robert Preston and Judith Ackerman, the other individual shareholders of Preston Stutman. 2 2 of 8

3 STATEMENT OF FACTS1 AND PROCEDURAL HISTORY Petitioner Dana Stutman ("Petitioner" or "Stutman") became a shareholder of respondent Preston Ettinger Steiner & Ackerman, P.C., f/k/a/ Preston Stutman & Partners, P.C., ("Preston Stutman" or "the firm") on or about November 9, (V. Pet. 6 (Tesser Aff. Ex. A)). The two other shareholders of the firm were respondents Robert Preston ("Preston") and Judith Ackerman ("Ackerman"). (V. Pet. TT 3-4). According to the Verified Petition, Petitioner decided in or about January of 2016 to leave the firm in order to join a newly-formed firm, (see V. Pet. TT 7-8), in which she and her new partners would "merge their practices," (V. Pet. 8), i.e. she was creating a competing law firm handling matrimonial cases.2 Shortly thereafter, Petitioner notified Preston that she was leaving Preston Stutman. (V. Pet. 8). Petitioner, however, did not provide a withdrawal date; instead, according to Petitioner, she allegedly informed Preston that "her withdrawal was uncertain, [and] that she believed it would occur within the next several months, but in any event not until at least April 1, 2016 at the earliest." (V. Pet. 9). In March of 2016, Petitioner then unilaterally decided, and subsequently informed Respondents, that she would not leave the firm in April, but would stay until at least May of (Id.). In early April, 2016 three months after Petitioner informed Respondents that she was leaving the firm and beyond the date which Petitioner allegedly estimated she would leave counsel to the firm sent Petitioner a letter informing her "that her 'withdrawal [from the firm] is accepted... effective as of the close of business, April 11, 2016." (V. Pet. 10). Petitioner now Respondents deny many of these facts. However, solely for the purposes of this motion, Respondents treat these facts as if they are true. 2 In the Verified Answer, Respondents have asserted a counterclaim for breach of fiduciary duty. Among other things, while Petitioner was still a partner and working at Preston Stutman, she was surreptitiously soliciting Preston Stutman clients to use her new firm, and used firm personnel, time, and resources to help set up her new competing firm. 3 3 of 8

4 denies that she ever withdrew from the firm. (Id.). Preston Stutman continued to operate, although Petitioner's name was removed (at Petitioner's request) from the firm name and from the firm website. (V. Pet. r12-13). According to the Verified Petition, on or about April 12, 2016 (i.e. after her withdrawal was accepted), Petitioner was denied access to Preston Stutman's computer network. (V. Pet. 10). Petitioner was also at that time allegedly denied access to the premises and was "removed... without notice from her role of overseeing booking duties and the ability to oversee finances of the firm." (V. Pet. 11). Petitioner alleges that Respondents have "refus[ed] to provide her with any meaningful financial information despite the numerous requests that she has made for that information." (V. Pet. 14). Petitioner subsequently filed a Verified Petition for Dissolution on June 2, (NYSCEF Doc. 1 (Tesler Aff. Ex. A)). (Petitioner never filed a Notice of Petition). In the Verified Petition, Petitioner sought a judicial dissolution of Preston Stutman pursuant to N.Y. B.C.L a, (V. Pet. r 16-19), and an accounting of Petitioner's interest in the firm. (V. Pet. 19).3 The Verified Petition requests that all three respondents including Preston and Ackerman individually be held liable and be required to pay Petitioner: "Respondents should be required to account to Petitioner for the fair value of her one-third ownership interest in that firm... and, promptly after completion of such accounting, should be required to pay Petitioner the amount to which she is entitled." (V. Pet. 19; see also V. Pet. 6-7 ("Petitioner Dana Stutman demands Judgment dissolving [the firm] and requiring Respondents to provide Petitioner with a financial account and thereafter to pay Petitioner the entire amount to which she is entitled...")). 3 It is unclear from the Verified Petition whether Petitioner is seeking dissolution based on oppressive actions against Petitioner or for waste or looting of firm assets. (See V. Pet. 18). 4 4 of 8

5 Petitioner filed a proposed Order to Show Cause on June 2, 2016, (NYSCEF Doc. 3 (Tesser Aff. Ex. B)), which this Court DENIED on June 6, (NYSCEF Doc. 8 (Tesser Aff. Ex. C)). On June 20, 2016, Petitioner filed another proposed Order to Show Cause, (NYSCEF Doc. 9 (Tesser Aff. Ex. D)), which was also DENIED.` The firm filed an Answer to the Verified Petition on September 8, (Tesser Aff. Ex. E). ARGUMENT STANDARD OF REVIEW Pursuant to CPLR 3211(a)(7), a party may move to dismiss a cause of action when the pleading, as a matter of law, fails to state a cause of action. "The sole criterion for deciding a motion to dismiss a complaint pursuant to CPLR 3211(a)(7), 'is whether the pleading states a cause of action, and if from its four corners factual allegations are discerned which taken together manifest any cause of action cognizable at law a motion for dismissal will fail.' African Diaspora Mar. Corp. v. Golden Gate Yacht Club, 109 A.D.3d 204, 211 (1st Dept. 2013). CPLR 3211(a)(7) may be applied to dismiss claims in dissolution proceedings. See Ricatto v. Almona, 2014 Misc. LEXIS 3513 (Sup. Ct. Kings County 2014) (dismissing partnership dissolution claim pursuant to CPLR 3211(a)(7)); see also Poubouridis v. Drizis, 2015 N.Y. Misc. LEXIS 4754 (Sup. Ct. Queens County 2015) (although upholding dissolution claim, applying 3211(a)(7) to N.Y. B.C.L petition). However, this Court did issue an Order on June 21, 2016, ordering that the only payments that Preston Stutman was permitted to make to Preston and Ackei man would be "in the same amount and on the same time schedule as the payments that have customarily been made to them each month prior to April 11, 2016." (NYSCEF Doc. 18). 5 5 of 8

6 If the Verified Petition fails to state a cause of action against Preston and Ackerman, the individual respondents, the Petition must be dismissed against them. POINT I THE VERIFIED PETITION FAILS TO STATE A CAUSE OF ACTION AGAINST RESPONDENTS PRESTON AND ACKERMAN, AND MUST THEREFORE BE DISMISSED In the Verified Petition, Petitioner's sole cause of action is a claim for dissolution of Preston Stutman and an accounting pursuant to N.Y. Business Corporation Law 1104-a. BCL 1104-a(a) peitnits a holder of at least twenty percent (20%) of the outstanding shares of a corporation to seek judicial dissolution, through a special proceeding (see BCL 1111(b)(3)), if either "[t]he directors or those in control... have been guilty of illegal, fraudulent or oppressive actions toward the complaining shareholders," or "[t]he property or assets of the corporation are being looted, wasted, or diverted for non-corporate purposes..." The provisions of BCL Art. 11 (and the special proceeding created thereby) only concern the dissolution of the corporation and accounting thereof they do not, expressly or impliedly, provide private causes of action against individual shareholders; thus, for example, BCL Article 11 cannot be invoked to require an individual shareholder to account. See Matter of Gould Erectors & Rigging, Inc., 119 A.D.3d 1039, 1041 (3d Dept. 2014) (where BCL 1104-a petition requested an accounting of the individual shareholder, the petition was dismissed vis-à-vis the shareholder for failure to obtain jurisdiction);5 see also Pappas v. Fotinos, 2010 N.Y. Misc. LEXIS N.Y. B.C.L. 1106(a) requires that the court order "the corporation and all persons interested in the corporation to show cause... why the corporation should not be dissolved." However, that section does not provide that the "persons interested" must be named in the Petition itself and does not create a cause of action against those "persons interested." This was addressed in Matter of Gould Erectors & Rigging, Inc., 119 A.D.3d at , where the petitioner added a claim for an accounting against an individual shareholder. The court found that the service of the order to show cause for purposes of the dissolution proceeding gave the court jurisdiction over the respondent shareholder for the corporate dissolution, but did not create a private cause of action for an accounting against the shareholder and did not 6 6 of 8

7 3349 (Sup. Ct. Kings County 2010) (noting that the sole remedy provided by BCL 1104-a for shareholder misconduct "is limited to 'stock valuations,'" not personal liability); BCL 1104-a(d). Accordingly, allegations in support of a dissolution proceeding do not support an award for damages or relief against other individual shareholders. This was directly addressed in In re Brooklyn Res. Recovery, Inc., 309 A.D.2d 931, 931 (2d Dept. 2003). In that case, a petitioner sought dissolution of Brooklyn Resources Recovery, Inc., pursuant to BCL 1104-a, alleging illegal, fraudulent or oppressive actions against the minority shareholder. The minority shareholder sought to amend the petition for dissolution to add a claim against another shareholder, but the Supreme Court denied the motion to amend. The Second Department upheld the Supreme Court's decision: Contrary to the petitioners' assertions, their petition for dissolution of Brooklyn Resources Recovery, Inc. (hereinafter BRRI), pursuant to Business Corporation Law 1104-a did not include any other causes of action, such as one to recover damages for breach of a loan agreement or fraud, but merely contained allegations of illegal, fraudulent, or oppressive actions required to support their claim for dissolution. Id., citing BCL 1104-a; see also Pappas v. Fotinos, 2010 N.Y. Misc. LEXIS 3349 (Sup. Ct. Kings County 2010) (where a petitioner sought relief against a fellow shareholder, stating that under BCL 1104-a, "allegations in support of a single claim for dissolution do not support an award for damages" against a fellow shareholder) (citing Brooklyn Res. Recovery, 309 A.D.2d at 931); Lubrano-Birken, Lexis Practice Commentary/Insights (distinguishing between dissolution proceedings and claims for damages against managers). Petitioner here has alleged that respondents Preston and Ackerman, in their individual capacities, "should be required to pay Petitioner the amount to which she is entitled." (V. Pet. give the court jurisdiction over the shareholder for a personal accounting. In other words, the fact that the BCL requires service upon those "persons interested," does not create a cause of action against them. 7 7 of 8

8 19; see also V. Pet. 6-7). Such a claim is not authorized by BCL 1104-a, which does not provide for personal liability of other shareholders. Brooklyn Res. Recovery, Inc., 309 A.D.2d at 931; Matter of Gould Erectors & Rigging, Inc., 119 A.D.3d at 1041; Pappas, 2010 N.Y. Misc. LEXIS Petitioner's cause of action should therefore be dismissed against Preston and Ackerman individually. CONCLUSION For the foregoing reasons, the Petition should be dismissed, in its entirety, against respondents Robert Preston and Judith Ackennan, pursuant to N.Y. C.P.L.R. 3211(a)(7). Dated: September 8, 2016 New York, New York Respectfully Submitted, Lewis Tesser Tesser, Ryan & Rochman, LLP Attorneys for Respondents 509 Madison Avenue New York, New York (212) of 8